Gold hasn't hit bottom

The swift recovery of the precious metal has calmed the market somewhat, but the correction is not over yet.

By MoneyShow.com May 3, 2013 1:49PM

Hundred dollar bills surrounded by gold copyright Anthony Bradshaw, PhotographerBy Przemyslaw Radomski, SunshineProfits.com


The Wall Street Journal had an especially colorful metaphor to describe what happened to the price of gold that fateful week when it tumbled 13% in two sessions through April 15 -- the biggest drop in 33 years.

"Slick with the viscera of crushed gold bugs, the world's trading floors look even more treacherous than usual."

Do we feel like crushed bugs? Not at all.

Do we think that the bull market in gold is over? Not yet. Do we know that markets can be cruel? Hell, yes.


Needless to say, the gold bears have been feeling lately like they have landed in a huge vat of honey. They are smug, to say the least. But we see this as an opportunity to get back into gold at a lower price and in the meantime, we made money shorting some of the downside (and on the pullback). 


We are not alone. Jim Rogers, who foresaw the start of a commodity secular bull market in 1999, said this may be the correction that gold needs. "If it goes down enough, I will start buying it," he told reporters.


Marc Faber, publisher of the Gloom, Boom & Doom report, could hardly contain his glee at the opportunity offered by the steep drop: "I love the fact that gold is breaking down because it will give a good entry point. The fundamentals for gold are intact."


He pointed out that while gold may be down 21% from its September 2011 high, Apple (AAPL) is 39% lower than last year's high. The S&P is almost 1% higher than its peak in October 2007, but over the same period gold is up 100%.


Pundits have given a garden variety of reasons for the decline. We have already covered some of them in our last essay. But there's more -- Goldman Sachs in an April 10 report reduced its gold futures forecast and made a self-fulfilling prophecy to short gold, hurting gold sentiment and likely triggering stop-loss orders. (They must be laughing all the way to the bank. Wait, they are the bank.) 


Cyprus said it might unload 10 tons of reserves to help fund its bank bailout -- the biggest sovereign sale for several years. It stoked fears that similar gold sales may be forced on other troubled Eurozone countries. Italy has the fourth largest gold holdings in the world of 2,452 tons.


Gold prices have been slowly gaining back (see TheMoneyShow) some of the lost ground as traders and investors step in to buy bargains. Since making the call that started the downward spiral, Goldman Sachs has covered its gold short this week.


There has been strong demand for physical gold, especially from Asia, which continues to underpin the gold market. Asia is witnessing one of the strongest waves of physical gold buying in 30 years. Retail sales of gold tripled across China April 15 to April 16, the China Gold Association said. The feverish buying has left many of Hong Kong's banks, jewelers, and even its gold exchange without enough gold to meet demand.


Is it time to be already back in the market? Let's take a look at gold charts to find out (charts courtesy of stockcharts.com).


chart
Click to Enlarge


On the above long-term gold chart, we see a pullback, which will be more visible when we zoom closer in our next chart. A local bottom may have been reached, though it seems that further declines are likely.


At this point, this major long-term cycle is still several weeks away, and with the precision of this cycle in the past, we expect that the final bottom will be seen much closer to it than what we've seen recently.


Please note that gold could decline to as low as $1,100 and still be in a long-term uptrend. In fact, technically, it could decline all the way to the 61.8% Fibonacci retracement level close to $900 and still remain in a bull market.


Let us now zoom in a bit and see how the situation looks like from the medium-term perspective.


chart
Click to Enlarge


In the chart, we saw a correction last week as gold's price rallied first to the 38.2% Fibonacci retracement level and after a brief pause, moved to the second one (50%) -- on Friday it closed slightly below it. Prices are currently consolidating around this level and the correction could actually be over. We have a situation where a moderate pullback was already seen -- the bound is no longer likely because it was already seen. The RSI indicator reflects that -- the market was extremely oversold on a short-term basis, but it's no longer the case.


We see that volume levels were low on Wednesday when prices rallied, the same happened on Thursday and volume peaked on Friday where the price actually declined, which is not a good sign and suggests that further declines are likely.


Now, we'll have a look at the Dow:gold ratio to see whether it indicates any important moves for gold.


chart
Click to Enlarge


Here, we see that the ratio moved close to the declining resistance line but didn’t really reach it. There is still some room for the ratio to move higher. If gold declines to its previous low or slightly lower, this declining resistance line will be reached, so basically further weakness could be seen here. The important point here is: the Dow to gold ratio chart does not imply a move higher for gold prices just yet.


Summing up, generally this week’s gold charts indicate that the yellow metal’s decline is not over yet. To the contrary, it could take a few more weeks before the rally really starts. There are also some indications that the correction (within the decline) is already over or close to being over.


More from The MoneyShow.com

85Comments
May 3, 2013 4:05PM
avatar
Gee all this talk about gold and you do not manage to mention the current price of gold.  Good job. What, where, when, why.  You left me with questions I expected your article to answer.  PATHETIC!

Ali Gator     chomp     chomp    chomp

May 4, 2013 5:03AM
avatar

Total Wall Street propoganda. Gold was smashed by the President's Working Group On Financial Markets by having the Federal Government proxie, JP Morgan, dump 53,000 PAPER contracts to sell gold on a Friday morning. JP Morgan DID NOT POSSESS 5.3 million ounces of gold to sell (which is the equivilent of 1/3 of WORLD YEARLY PRODUCTION), nor was 1 PHYSICAL OUNCE OF GOLD EVER TRADED. It was a TOTAL PAPER SHAM orchestrated by THE FEDERAL RESERVE to PROP UP THE DOLLAR.

TRY BUYING SOME PHYSICAL GOLD! THERE IS NONE TO BE HAD!

The paper price of gold is an irrelevant joke!

May 3, 2013 8:46PM
avatar
gold goes down, oil goes down, economy goes up, growth goes up,jobs go up poverty goes down stock market goes up........bajillionaires ruin it by starting a war.  Oil goes up, gold goes up, economy goes down, growth goes down, jobs go to China, povrty goes up. etc.
May 3, 2013 4:29PM
avatar
earlier your currency was tied to the gold you had. Then it was decoupled. Now the gold is being sold to create money and not to mention that money is being printed without restraint. So what is holding up the value of this peice of paper we call money?
May 3, 2013 2:49PM
avatar
Gold is a "loss"?  HA!  Why just this morning I caught my wife
trying to pry my fillings out because she saw a dress she liked at Macys.

May 3, 2013 7:31PM
avatar

One ounce of gold will soon be worth 1,000,000 Obama dollars

May 3, 2013 3:52PM
avatar
Never put your eggs all in one basket!
May 5, 2013 12:40PM
avatar
I find this interesting statement in the article:
"Since making the call that started the downward spiral, Goldman Sachs has covered its gold short this week."

If you or I tried this, we'd be facing a SEC investigation for market manipulation.  But if you are a "Too Big to Fail" financial institution, currently in the favor of the Obama administration, the SEC apparently looks the other way.

May 4, 2013 8:20PM
avatar
Who cares about gold.  72% hamburger was over $3.00 a pound today.
May 4, 2013 3:07PM
avatar

Gold is worth nothing.  Ok, I got your attention.  Gold is worth nothing except for what someone is willing to pay you for it.  So Gold is worth $2000 an oz if someone can convince you the world is going to completely fall apart, and then, of course, you can eat it.  Gold is worth $300 an oz if the world is fine and you want a nice ring.  So make your wager, the world is going to end or the world is fine.

 

It the current economic mess is like every other mess we have lived through and come out the other side, then Gold will see $500 again.  If the current mess is unlike any we have seen then wager on Gold hitting $3000 or $5000.  I think people are tiring of the "world is ending" stuff.  It just has not happened.  Don't get me wrong, Obama's trillion dollar deficits are a disaster and may mess us up for good.  But...

May 3, 2013 8:54PM
avatar
It may go lower,but as soon as it does DEMAND will spike again!The current cost for refiners to extract an ounce of gold is between $1,200-$1,500/oz,so manipulating the price below the refining cost will constrict supply AND unleash demand.I would love nothing more than to see gold below $800 again,but even the central banksters cannot remove economic law from the system.

I believe gold will remain below $1,500 and silver below $25 for the time being.This is GREAT NEWS as both are on sale.The stock market junkies can keep their illusion of recovery and soon to be worthless fiat.This is yet another meaningless article designed to keep the sheeple in paper instruments and out hard assets,nothing more.
May 3, 2013 3:34PM
avatar
NEED MORE PAIN IN THE GOLD MARKET.A LOT MORE PAIN.
May 6, 2013 8:24AM
avatar

April 2008, as soon as I saw we were going to elect a quasi socialist, either Clinton or Obama, I cashed everything out and bought gold, took possesion.There it stays until the inept lying anti business quasi socialist in the white house is an esoteric historicalm footnote.

I can live with only 250% profit.

May 6, 2013 12:38PM
avatar

Hey KOO

 

And why do you think they're selling gold to pay off debt?

 

Because the holders of that debt won't take any more paper dollars!!!

 

Anybody who believes the bull coming from the government nowadays, is either a power-hungry fascist or needs to get educated real fast on how the real world works,

 

There is not ONE [NOT ONE MUND YOU] example of a country that has had a paper currency without anything to back it with, that has not inflated it into the worthless paper it really is

May 5, 2013 10:53PM
avatar
with the brics wanting there own currency and germans wanting to pull the plug on the euro because its tired of carrying europe the dollar a currency that's probably tied to the world of thieves and opportunist and gold plunging what's next
May 3, 2013 4:02PM
avatar
PaPa Joe....You put your eggs in TWO comments...yuk,yuk.
May 3, 2013 8:13PM
avatar

All we are hoping for now is to get about even on Gold..

Above that is a gift..

Getting more will probably be everything about Inflation..?

And hurting the price of some other equities.

May 6, 2013 11:10AM
avatar
Sprued...Sounds like you think all Dems are quasi-socialist..??
May 12, 2013 12:59PM
avatar
Just after Presadent Obama had a meeting with the 12 major bankers two weeks ago.  Gold and silver prices droped 15%.  Whats up with that?
May 6, 2013 1:50PM
avatar
Gold is what it is. What ever you will pay for it in inflation terms, that's what it will cost you. If you think that goods are going to cost more in the future, guess what? So will gold.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
284
284 rated 2
461
461 rated 3
671
671 rated 4
628
628 rated 5
618
618 rated 6
615
615 rated 7
495
495 rated 8
347
347 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.